Beruflich Dokumente
Kultur Dokumente
Negotiable Instruments – written contracts for the payment of money; by its form, intended as a
substitute for money and intended to pass from hand to hand, to give the holder in due course the right
to hold the same and collect the sum due.
a. negotiability – right of transferee to hold the instrument and collect the sum due
Holder in due course may have better rights transferee acquires rights only of his
than transferor transferor
Prior parties warrant payment prior parties merely warrant legality of title
Have requisites of Sec. 1 of the NIL does not contain requisites of Sec. 1 of NIL
Holder in due course may have rights better transferee merely steps into the shoes of the
than transferor transferor
5. Promissory Note – unconditional promise to pay in writing made by one person to anther, signed
by the maker, engaging to pay on demand or a fixed determinable future time a sum certain in money to
order or bearer. When the note is drawn to maker’s own order, it is not complete until indorse by him.
(Sec. 184 NIL)
Parties:
1. maker
2. payee
6. Bill of Exchange – unconditional order in writing addressed by one person to another, signed by
the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to order or to bearer. (Sec. 126 NIL)
Parties:
1. drawer
2. payee
3. drawee/ acceptor
7. Check – bill of exchange drawn on a bank and payable on demand. (Sec. 185 NIL)
CHECK BOE
– always drawn upon a bank or banker – may or may not be drawn against a bank
– must be presented for payment within a – may be presented for payment within a
reasonable time after its issue (6 months) reasonable time after its last negotiation.
PN CHECK
– there are two (2) parties, the maker and – there are three (3) parties, the drawer, the
the payee drawee bank and the payee
– may be drawn against any person, not
necessarily a bank – always drawn against a bank
a. certificates of deposits
b. trade acceptances
e. letters of credit
12. Trust Receipt – a security transaction intended to aid in the financing of importers and retailers
who do not have sufficient funds to finance their transaction and acquire credit except to use as
collateral the merchandise imported
It must:
It must:
5. the drawee must be named or otherwise indicated with reasonable certainty (Sec. 1 NIL)
Notes on Section 1:
– In order to be negotiable, there must be a writing of some kind, else there would be nothing to
be negotiated or passed from hand to hand. The writing may be in ink, print or pencil. It may be upon
parchment, cloth, leather or any other substitute of paper.
– It must be signed by the maker or drawer. It may consist of mere initials or even numbers, but the
holder must prove that what is written is intended as a signature of the person sought to be charged.
– The Bill must contain an order, something more than the mere asking of a favor.
– Sum payable must be in money only. It cannot be made payable in goods, wares, or merchandise
or in property.
*In determining is the instrument is negotiable, only the instrument itself and no other, must be
examined and compared with the requirements stated in Sec. 1. If it appears on the instrument that it
lacks one of the requirements, it is not negotiable and the provisions of the NIL do not govern the
instrument. The requirement lacking cannot be supplied by using a separate instrument in which that
requirement which is lacking appears.
a. interest
b. in installments
d. with exchange
17. General Rule: The promise or order should not depend on a contingent event. If it is conditional, it
is non-negotiable.
Exceptions:
a. indication of particular fund from which the acceptor disburses himself after payment
b. statement of the transaction which gives rise to the instrument. (Sec. 3 NIL)
Notes on Section 3
– The particular fund indicated should not be the direct source of payment, else it becomes
unconditional and therefore non-negotiable. The fund should only be the source of reimbursement.
– A statement of the transaction does not destroy the negotiability of the instrument. Exception:
Where the promise to pay or order is made subject to the terms and conditions of the transaction
stated.
c. on or at a fixed date after the occurrence of an event certain to happen though the exact date is
not certain (Sec. 4 NIL)
Notes on Section 4
– If the instrument is payable upon a contingency, the happening of the event does not cure the
defect (still non-negotiable)
19. General Rule: If some other act is required other than the payment of money, it is non-
negotiable.
Exceptions:
d. gives option to the holder to require something to be done in lieu of money (Sec. 5 NIL)
Notes of Section 5
– There are two kinds of judgements by confession: a) cognovit actionem b) relicta verificatione
– If the choice lies with the debtor, the instrument is rendered non-negotiable.
20. The validity and negotiability of an instrument is not affected by the fact that:
1. it is not dated
2. does not specify the value given or that any had been given
4. bears a seal
5. designates the kind of current money in which payment is to be made (Sec. 6 NIL)
Where an instrument is issued, accepted or indorsed when overdue, it is, as regards to the person so
issuing, accepting, or indorsing it, payable on demand.
Notes on Section 7
– if the time for payment is left blank (as opposed to being omitted), it may properly be considered as an
incomplete instrument and fall under the provisions of Sec. 14, 15, or 16 depending on how the
instrument is delivered.
3. the drawee
Notes on Section 8
– The payee must be named or otherwise indicated therein with reasonable certainty.
– If there is no payee, there would be no one to indorse the instrument payable to order. Therefore
useless to be considered negotiable.
– Joint payees in indicated by the conjunction “and”. To negotiate, all must indorse.
c. payable to order of fictitious or non-existent person and this fact was known to drawer
Notes on Section 9
– “fictitious person” is not limited to persons having no legal existence. An existing person may be
considered fictitious depending on the intention of the maker or the drawer.
– “fictitious person” means a person who has no right to the instrument because the maker or
drawer of it so intended. He was not intended to be the payee.
– where the instrument is drawn, made or prepared by an agent, the knowledge or intent of the
signer of the instrument is controlling.
– Where the agent has no authority to execute the instrument, the intent of the principal is
controlling
2. where acceptance of an instrument payable at a fixed period after sight is undated (Sec. 13 NIL)
Effects:
– the insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder
in due course
– as to the holder in due course, the date inserted (even if it be the wrong date) is regarded as the
true date.
25. Subsequent Holder in Due Course not affected by the following deficiencies:
b. It must be filled up strictly in accordance with the authority given and within a reasonable time.
c. If negotiated to a holder in due course, it is valid and effectual for all purpose as though it was
filled up strictly in accordance with the authority given and within reasonable time. (Sec. 14 NIL)
1. It was delivered by the person making it in order that it may be converted into a negotiable
instrument
2. The holder has prima facie authority to fill it up as such for any amount. (Sec. 14 NIL)
Notes on Section 14
– if the instrument is wanting in material particular, mere possession of the instrument is enough
to presume prima facie authority to fill it up.
– material particular may be an omission which will render the instrument non-negotiable (e.g.
name of payee), an omission which will not render the instrument non-negotiable (e.g. date)
– in the case of the signature in blank, delivery with intent to convert it into a negotiable
instrument is required. Mere possession is not enough.
General Rule: Where an incomplete instrument has not been delivered, it will not, if completed and
negotiated without authority, be a valid contract in the hands of any holder against any person who
signed before delivery. (Sec. 15 NIL)
Notes on Section 15
General Rule: Every contract on a negotiable instrument is incomplete and revocable until delivery for
the purpose of giving effect thereto.
a. If between immediate parties and remote parties not holder in due course, to be effectual there
must be authorized delivery by the party making, drawing, accepting or indorsing. Delivery may be
shown to be conditional or for a special purpose only
b. If the holder is a holder in due course, all prior deliveries conclusively presumed valid
c. If instrument not in hands of drawer/maker, valid and intentional delivery is presumed until the
contrary is proven (Sec. 16 NIL)
2) as between immediate parties or those is like cases, delivery must be with intention of passing title
3) an instrument signed but not completed by the drawer or maker and retained by him is invalid as to
him for want of delivery even in the hands of a holder in due course
4) but there is prima facie presumption of delivery of an instrument signed but not completed by the
drawer or maker and retained by him if it is in the hands of a holder in due course. This may be rebutted
by proof of non-delivery.
5) an instrument entrusted to another who wrongfully completes it and negotiates it to a holder in due
course, delivery to the agent or custodian is sufficient delivery to bind the maker or drawer.
6) If an instrument is completed and is found in the possession of another, there is prima facie
evidence of delivery and if it be a holder in due course, there is conclusive presumption of delivery.
7) delivery may be conditional or for a special purpose but such do not affect the rights of a holder in
due course.
30. General rule: a person whose signature does not appear on the instrument in not liable.
Exception:
31. General rule: an agent is not liable on the instrument if he were duly authorized to sign for or on
behalf of a principal.
Requisites:
Notes on Section 20
– if an agent does not disclose his principal, the agent is personally liable on the instrument.
32. Per Procuration – operates as notice that the agent has a limited authority to sign.
Effects:
– the principal in only bound if the agent acted within the limits of the authority given
– the person who takes the instrument is bound to inquire into the extent and nature of the
authority given. (Sec. 21 NIL)
33. General rule: Infants and corporations incur no liability by their indorsement or assignment of an
instrument. (Sec. 22 NIL)
Effects:
34. General rule: a signature which is forged or made without authority is wholly inoperative.
Effects:
1. no right to retain
– the party against whom it is sought to be enforced is precluded from setting up the forgery or
want of authority.
Notes on Section 23
– Forms of forgery are a) fraud in factum b) duress amounting to fraud c) fraudulent impersonation
– Only the signature forged or made without authority is inoperative, the instrument or other
signatures which are genuine are affected
– The instrument can be enforced by holders to whose title the forged signature is not necessary
– Persons who are precluded from setting up the forgery are a) those who warrant or admit the
genuineness of the signature b) those who are estopped.
– Persons who are precluded by warranting are a) indorsers b) persons negotiating by delivery c)
acceptors.
– if endorser’s signature is forged, loss will be borne by the forger and parties subsequent thereto
– drawee bank is not conclusively presumed to know the signature of the indorser. The
responsibility falls on the bank which last guaranteed the indorsement and not the drawee bank.
– Where the payee’s signature is forged, payments made by the drawee bank to collecting bank is
ineffective. No debtor/creditor relationship is created. An agency to collect is created between the
person depositing and the collecting bank. Drawee bank may recover from collecting bank who may in
turn recover from the person depositing.
In a PN
– a party whose indorsement is forged on a note payable to order and all parties prior to him
including the maker cannot be held liable by any holder
– a party whose indorsement is forged on a note originally payable to bearer and all parties prior to
him including the maker may be held liable by a holder in due course provided that it was mechanically
complete before the forgery
– a maker whose signature was forged cannot be held liable by any holder
In a BOE
– the drawer’s account cannot be charged by the drawee where the drawee paid
– the payee can recover from the recipient of the payment, such as the collecting bank
– the collecting bank bears the loss but can recover from the person to whom it paid
– if payable to bearer, the rules are the same as in PN.
– if the drawee has accepted the bill, the drawee bears the loss and his remedy is to go after the
forger
– if the drawee has not accepted the bill but has paid it, the drawee cannot recover from the
drawer or the recipient of the proceeds, absence any act of negligence on their part.
35. Every negotiable instrument is deemed prima facie to have been issued for a valuable
consideration. (Sec. 24 NIL)
Effects:
– presumption is disputable
36. Where value has at any time been given for the instrument, the holder is deemed a holder for value
in respect to all parties who become such prior to that time. (Sec. 26 NIL)
1. Absence or failure of consideration may be set up against a holder not a holder in due course
(personal defense)
Notes on Section 28
– failure of consideration implies that consideration was intended by that it failed to pass
– a drawee who accepts the bill cannot allege want of consideration against the drawer
38. An accommodation party is one who signs the instrument as maker, drawer, acceptor, or indorser
without receiving value therefor and for the purpose of lending his name to some other person.
Effects:
– an accommodation party is liable to the holder for value notwithstanding that such holder knew
that of the accommodation. (Sec. 28 NIL)
Notes on Section 28
– an accommodation maker may seek reimbursement from a co-maker even in the absence of any
provision in the NIL; the deficiency is supplied by the New Civil Code.
– he may do this even without first proceeding against the debtor provided:
1. written
Notes on Section 31
– an allonge must be attached so that it becomes a part of the instrument, it cannot be simply
pinned or clipped to it.
– the person indorsing is liable as indorser to such persons as to make title through his indorsement
(Sec. 40 NIL)
Notes on Section 40
– It cannot apply where the instrument is payable to bearer because the only or last indorsement is
in blank.
43. A holder may strike out any indorsement which is not necessary to his title.
Effects:
– All indorsers subsequent to such indorser who has been discharged are likewise relieved. (Sec. 48
NIL)
– the transferee acquires the right to have the indorsement of the transferor
– negotiation takes effect as of the time the indorsement is actually made (Sec. 49 NIL)
Effects:
b. became a holder before it was overdue and had no notice that it had been previously dishonored
if such was the fact
d. at time he took the instrument, no notice of infirmity in instrument or defect in the title of the
person negotiating it (Sec. 52 NIL)
Notes on Section 52
– the person who questions such has the burden of proof to prove otherwise
– an instrument is considered complete and regular on its face if a) the omission is immaterial b)
the alteration on the instrument was not apparent on its face
– on the date of maturity, the instrument is not overdue and the holder is a HDC
47. A holder is not a HDC where an instrument payable on demand is negotiated at an unreasonable
length of time after its issue (Sec. 53 NIL)
– holds the instrument free from any defect of title of prior parties
– free from defenses available to prior parties among themselves (personal/ equitable defenses)
– may enforce payment of the instrument for the full amount against all parties liable(Sec. 57 NIL)
Notes on Section 57
– Personal or equitable defenses are those which grow out of the agreement or conduct of a
particular person in regard to the instrument which renders it inequitable for him through legal title to
enforce it. Can be set up against holders not HDC
– Legal or real defenses are those which attach to the instrument itself and can be set up against
the whole world, including a HDC.
Personal Defenses Real Defenses
7. acquisition of the instrument by unlawful Insanity where the insane person has a
means guardian appointed by the court
49. A instrument not in the hands of a HDC is subject to the same defenses as if it were non-negotiable.
Exception:
– a holder who derives his title through a HDC and is not a party to any fraud or illegality affecting
the instrument, has all the rights of such HDC in respect to all parties prior. (Sec. 58 NIL)
– if he derives his title through a HDC and is not a party to any fraud or illegality thereto, has all the
rights of such HDC
50. General rule: every holder is deemed prima facie to be a holder in due course.
Exception:
– where it is shown that the title of any person who has negotiated the instrument is defective, the
burden is on the holder to prove that he is a HDC or that a person under whom he claims is a HDC (Sec.
59 NIL)
Notes on Section 60
– one who has signed as such is presumed to have acted with care and to have signed with full
knowledge of its contents, unless fraud is proved
– the payee’s interest is only to see to it that the note is paid according to its terms
– when two or more makers sign jointly, each is individually liable for the full amount even if one
did not receive the value given
– the maker is precluded from setting up the defense of a) the payee is fictional, b) that the payee
was insane, a minor or a corporation acting ultra vires
3. engages that on due presentment, the instrument will be accepted or paid or both according to
its tenor.
If the instrument is dishonored, and the necessary proceedings on dishonor duly taken
Notes on Section 61
– admits the existence of the drawer, the genuineness of his signature and his capacity and
authority to draw the instrument
54. Irregular Indorser – a person not otherwise a party to an instrument places his signature in blank
before delivery is liable as an indorser in the following manner:
1. if payable to order of a third person – liable to the payee and to all subsequent parties
2. if payable to order of the maker or drawer – liable to all parties subsequent to the maker or
drawer
4. if signs for an accommodation party – liable to all parties subsequent to the payee (Sec. 64 NIL)
4. indorser has no knowledge of any fact that would impair the validity or the value of the
instrument.
Limitations of warranties:
-warranty of capacity to contract does not apply to persons negotiating public or corporate securities
(Sec. 65 NIL)
Notes on Section 65
– recourse – resort to a person secondarily liable after default of person primarily liable
– a qualified indorser cannot raise the defense of a) forgery b) defect of his title or that it is void c)
the incapacity of the maker, drawer or previous indorsers.
– a qualified Indorsement makes the indorser mere assignor of title of instrument, relieves him of
general obligation to pay if instrument is dishonored, but he is still liable for the warranties arising from
instrument only up to warranties of general indorser
– the warranty is to the capacity of prior parties at the time the instrument was negotiated.
Subsequent incapacity does not breach the warranty.
– lack of knowledge of the indorser as to any fact that would impair the validity or the value of the
instrument must be subsisting all throughout.
– a person Negotiating by Delivery warrants same as those of qualified indorser and extends to
immediate transferees only
4. that the instrument at the time of his indorsement was valid and subsisting (Sec. 66 NIL)
In addition:
– engages that the instrument will be accepted or paid or both according to its tenor on due
presentment
– engages to pay the amount thereof if it be dishonored and the necessary proceedings on
dishonor are taken
Notes on Section 66
– the indorser warrants that the instrument is valid and subsisting regardless of whether he is
ignorant of that fact or not.
– warranties extend in favor of a) a HDC b) persons who derive their title from HDC c) immediate
transferees even if not HDC
– the indorser does not warrant the genuineness of the drawer’s signature
57. General rule: Presentment for payment is not necessary to charge persons primarily liable on the
instrument. Presentment for payment is necessary to charge the drawer and indorsers. (Sec 70 NIL)
Notes on Section 70
– presentation for payment – production of a BOE to the drawee for his acceptance, or to a drawee
or acceptor for payment. Also presentment of a PN to the party liable for payment of the same.
– consists of a) a personal demand for payment at a proper place b) the bill or note must be ready
to be exhibited if required and surrendered upon payment.
– parties primarily liable – persons by the terms of the instrument are absolutely required to pay
the same. E.g maker and acceptors. They can be sued directly.
– if payable at the special place, and the person liable is willing to pay there at maturity, such
willingness and ability is equivalent to tender of payment.
– presentment is necessary to charge persons secondarily liable otherwise they are discharged
– Acts needed to charge persons secondarily liable in other cases: a) Protest for non-payment by
the drawee b) protest for non-payment by the acceptor for honor
4. to the person primarily liable or if absent to any person found at the place where presentment is
made (sec. 72 NIL)
Notes on Section 72
– only the holder or one authorized by him has the right to make presentment for payment
– presentment for payment is made to the maker, or acceptor. Not to the person secondarily liable.
2. he has no reason to expect that the instrument will be paid if presented (Sec. 80 NIL)
61. General rule: Presentment for payment necessary to charge persons secondarily liable otherwise
they are discharged:
Exception:
– Section 79 and 80
– only the drawer or indorser are not discharged. All other parties secondarily liable are discharged.
b. presentment is waived
Notes on Section 82
– what is excused is the failure to make presentment. There is no need to make any presentment
versus under section 81 (delay in presentment) presentment for payment is still required after the cause
of delay has ceased.
– the instrument was duly presented but payment is refused or cannot be obtained
– presentment is excused and the instrument is overdue and unpaid (Sec. 83 NIL)
– an immediate right of recourse to all parties secondarily liable accrues to the holder. (Sec. 84 NIL)
Notes on Section 84
2. to the holder
3. in good faith
Notes on Section 88
– possession of the note by the maker is presumptive evidence that it has been paid
– to a holder who having taken it up would have a right of reimbursement from the party to whom
notice is given. (Sec. 90 NIL)
68. Notice:
2. written notice need not be signed or may be supplemented by verbal communication (Sec. 95)
– deemed a waiver of presentment and notice of dishonor as well (Sec. 111 NIL)
71. Notice of Dishonor – given by the holder to the parties secondarily liable, drawer and each
indorser, that the instrument was dishonored by non-acceptance or non-payment by the drawee/maker
General rule: Any drawer or indorser to whom such notice is not given is discharged.
Exceptions:
d. drawer has no right to expect that the drawee will accept/pay the instrument (Sec. 114 NIL)
a. drawee was a fictitious/incapacitated person and the indorser was aware of such at the time of
indorsement
74. Omission to give notice of dishonor by non-acceptance doe not prejudice a HDC (Sec. 117 NIL)
75. Protest only necessary for a foreign bill of exchange. Protest for other negotiable instruments is
optional. (Sec. 118 NIL)
e. debtor becomes holder of the instrument at/after maturity in his own right ( Sec 119 NIL)
– if payment is not made by the principal debtor, payment only cancels the liability of the payor
and those obligated after him but does not discharge the instrument.
– the party may strike out his own and all subsequent indorsements
Exception:
– an instrument cannot be renegotiated where it is payable to order of a 3rd person and has been
paid by the drawer
– and instrument cannot be renegotiated where is was made or accepted for accommodation and
it has been paid by the party accommodated.
4. in writing or the instrument is delivered up to the person primarily liable (Sec. 122 NIL)
– if renounced in favor of a party secondarily liable, only he is exonerated from liability and all
parties subsequent to him
79. General rule: When materially altered, without the consent of all parties liable, the instrument is
avoided except as against:
3. subsequent indorsers
Exception:
– if in the hands of a HDC, may be enforced according to its original tenor
80. Material Alteration – an alternation is said to be material if it alters the effect of the instrument.
Under Section 125 the following changes are considered material alterations:
1. dates
1. where the drawer and the drawee are one and the same
82. Acceptance is the signification by the drawee of his assent to the order of the drawer. It is an act by
which a person on whom the BOE is drawn assents to the request of the drawer to pay it. (Sec. 132 NIL)
1. actual
2. constructive
– in writing
– must not express the drawee will perform his promise by any other means than payment of
money
1. require that acceptance be written on the bill and if refused, treat it as if dishonored (Sec. 133)
2. refuse to accept a qualified acceptance and may treat it as dishonored (Sec. 142)
8. Constructive Acceptance:
1. where the drawee to whom the bill has been delivered destroys it
2. the drawee refuses within 24 hrs after such delivery or within such time as is given, to return the
bill accepted or not. (Sec. 137 NIL)
3. if the bill is drawn payable elsewhere than the residence or place of business of the drawee (Sec.
143 NIL)
a. to make the drawee primarily liable and for the accrual of secondary liability (Sec. 144)
b. necessary to fix maturity date, where bill expressly stipulates presentment, bill payable other than
place of drawee (Sec. 143)
c. when presentment is excused: drawee is dead, hides, is fictitious, incapacitated person, after due
diligence presentment cannot be made, presentment is refused on another ground although
presentment is irregular (Sec. 148)
Exception:
Protest is required:
3. where the bill has been accepted for honor, it must be protested for non-payment before it is
presented for payment to the acceptor for honor
4. where the bill contains a referee in case of need, it must be protested for non payment before
presentment for payment to the referee in case of need (Sec. 152)
– Protest – formal statement in writing made by a notary under his seal of office at the request of
the holder, in which it is declare that the some was presented for payment or acceptance (as the case
may be) and such was refused.
– it means all steps or acts accompanying the dishonor of a bill or note necessary to charge an
indorser
– it must be made on the same date of dishonor, by a notary/respectable citizen of the place in the
presence of 2 credible witnesses so recourse to secondary parties
1. Acceptance for Honor (Sec. 161 NIL)– an acceptance of a bill made by a stranger to it before
maturirty, where the drawee of the bill has:
1. refused to accept it
– the bill must have been previously protested a) for non-acceptance b) or for better security
– the bill is not overdue at the time of the acceptance for honor
– Purpose: to save the credit of the parties to the instrument or some party to it as the drawer,
drawee, or indorser or somebody else.
– Acceptor for honor is liable to the holder and to all the parties to the bill subsequent to the party
for whose honor he has accepted (Sec. 164)
3. Payment for Honor – payment made through a notarial act of honor of a party liable/stranger to
the bill after bill has been dishonored by non-payment by the acceptor and protested for non-
payment by the holder
Requisites:
1. payment must be attested by notarial act appended to the protest, or form an extension to it.
2. notarial act of honor must be based on a declaration by the payer for honor
4. Bills in Set – bill of exchange drawn in several parts, each part of the set being numbered and
containing a reference to the other parts, the whole of the parts just constituting one bill (Sec
178 NIL)
Source:
DEC 19
Posted by Magz
Memory Aid
DISCHARGE
1. Of the Instrument
4. payment in due course by party accommodated where party is made/ accepted for
accommodation
2. principal debtor becomes holder of instrument at or after maturity in his own right
3. renunciation of holder:
holder may expressly renounce his rights vs. any party to the instrument, before or after its
maturity
absolute and unconditional renunciation of his rights vs. principal debtor made at or after
maturity discharges the instrument
1. material alteration (sec. 124: material alteration w/o assent of all parties liable avoids
instrument except as against party to alteration and subsequent indorsers)
1. Of secondary parties
6. release of principal debtor, unless holder’s right of recourse vs. 2ndary party reserved
7. any agreement binding upon holder to extend time of payment, or to postpone holder’s right to
enforce instrument, unless made with assent of party secondarily liable, or unless right of
recourse reserved.
where instrument negotiated back to a prior party, such party may reissue and further
negotiate, but not entitled to enforce payment vs. any intervening party to whom he was
personally liable
where instrument is paid by party secondarily liable, it’s not discharged, but
1. the party so paying it is remitted to his former rights as regard to all prior parties
2. and he may strike out his own and all subsequent indorsements, and again negotiate
instrument, except
where it’s payable to order of 3rd party and has been paid by drawer
where it’s made/accepted for accommodation and has been paid by party accommodated.
BarOps ’99
Commercial Law – Val Feria, Mina Herrera, Gary Mallari & Rachel Ramos
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DEC 19
Posted by Magz
Memory Aid
LIABILITIES OF PARTIES
1. PRIMARY PARTIES
Person primarily liable: person who by the terms of the instrument is absolutely required to pay
the same.
1. Liability of Acceptor
1. existence of drawer
Kinds of Acceptance:
1. general
2. qualified
1. conditional
2. partial
3. local
4. qualified as to time
Certification: Principles
2. where holder of check procures it to be accepted/certified, drawer and all indorsers discharged
from al liability
3. check not operate as assignment of any part of funds to credit of drawer with bank, and bank is
not liable to holder, unless and until it accepts or certifies check
1. SECONDARY PARTIES
2. Liability of Drawer
4. Engages that on due presentment instrument will be accepted, or paid, or both, according to its
tenor and that
5. If it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the
amount thereof to the holder or to an subsequent indorser who may be compelled to pay it
drawer may insert in the instrument an express stipulation negativing / limiting his own liability
to holder
1. Liability of Indorsers:
2. good title
4. he had no knowledge of any fact w/c would impair validity of instrument or render it valueless
in case of negotiation by delivery only, warranty only extends in favor of immediate transferee
4. if it be dishonored, and necessary proceedings on dishonor be duly taken, he will pay the amt.
To holder, or to any subsequent indorser who may be compelled to pay it
1. among themselves: liable prima facie in the order they indorse, but proof of another agreement
admissible
2. but holder may sue any of the indorsers, regardless of order of indorsement
Definition: one who signed instrument as maker/drawer/acceptor/ indorser w/o receiving value
thereof, for the purpose of lending his name to some other person
AP liable on the instrument to holder for value even if holder, at time of taking instrument,
knew he was only an AP
Liability of Irregular Indorser
Where a person not otherwise a party to an instrument, places thereon his signature in
blank before delivery, he’s liable as an indorser, in accordance w/ these rules:
1. Instrument payable to order of 3rd person: liable to payee and to all subsequent parties
2. Instrument payable to the order of maker/drawer, or payable to bearer: liable to all parties
subsequent to maker/drawer
1. a joint and several accommodation maker of a negotiable promissory note may demand from
the principal debtor reimbursement for the amt. That he paid to the payee
2. a joint and several accommodation maker who pays on the said promissory note may directly
demand reimbursement from his co-accommodation maker without first directing his action vs.
the principal debtor provided:
1. Liability of an Agent
Signature of any party may be made by duly authorized agent, establish as in ordinary agency
Where instrument contains or a person adds to his signature words indicating that he signs for
or on behalf of a principal, he is not liable on the instrument if he was duly authorized, but the
mere addition of words describing him as an agent without disclosing his principal, does not
exempt from personal liability.
Signature per procuration operates as notice that the agent has but a limited authority to sign,
and the principal is bound on ly in case the agent in so signing acted within the actual limits of
his authority
Where a broker or agent negotiates an instrument without indorsement, he incurs all liabilities
in Sec. 65, unless he discloses name of principal and fact that he’s only acting as agent
1. bill payable after sight, or in other cases where presentment for acceptance necessary to fix
maturity
3. where bill is drawn payable elsewhere than at residence / place of business of drawee
Failure to present for acceptance of negotiate bill of exchange within reasonable time
Reasonable Time
Must consider
1. nature of instrument
2. usage of trade or business with respect to instrument
Date and time of presentment of instrument bearing fixed maturity Sec. 71, 85, 86, 194
Date of presentment
Where instrument not payable on demand: presentment must be made on date it falls due
Where payable on demand: presentment must be made within reasonable time after issue,
except that in case of a bill of exchange, presentment for payment will be sufficient if made
within a reasonable time after last negotiation (but note: though reasonable time from last
negotiation, it may be unreasonable time from issuance thus holder may not be HDC under sec.
71)
Check must be presented for payment within reasonable time after its issue or drawer will be
discharged from liability thereon to extent of loss caused by delay
Place Sec. 73
Notice of Dishonor
General rule: to drawer and to each indorser, and any drawer or indorser to whom such notice is not
given is discharged
Form, Contents, Time Sec. 95, 96, 102, 103, 104, 105, 106, 108, 113
By Whom Given
By or on behalf of the holder or any party to the instrument who may be compelled to pay it to
the holder, and who, upon taking it up, would have a right to reimbursement from the party to
whom the notice is given
Notice of dishonor may be given by an agent either in his own name or in the name of any party
entitled to give notice, whether that party be his principal or not
Where instrument has been dishonored in hands of agent, he may either himself give
notice to the parties liable thereon, or he may give notice to his principal (as if agent an
independent holder)
2. all prior parties who have a right of recourse vs. the party to whom it’s given
2. where notice given by/on behalf of a party entitled to give notice: insures for benefit of
a. holder , and
1. drawee fictitious, incapacitated, and indorser aware of the fact at time of indorsement
Protest
Definition: testimony of some proper person that the regular legal steps to fix the liability of drawer and
indorsers have been taken
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KINDS OF DEFENSES
1. real defense – attaches to instrument; on the principle that the right sought to be
enforced never existed/there was no contract at all
DEFENSES
1. forged
2. made without authority of person whose signature it purports to be.
General Rule:
1. wholly inoperative
2. no right to retain instrument, or give discharge, or enforce payment vs. any party, can be
acquired through or under such signature (unless forged signature unnecessary to holder’s title)
Exception:
unless the party against whom it is sought to enforce such right is precluded from setting up
forgery/want of authority
precluded:
2. estopped/negligent parties
1. 1. overdraft
3. 3. forged indorsements
1. MATERIAL ALTERATION
Where NI materially altered w/o assent of all parties liable thereon, avoided, except as vs. a
But when an instrument has been materially altered and is in the hands of a HDC not a party to
the alteration, HDC may enforce payment thereof according to orig. tenor
Material Alteration
1. change date
3. time of payment
4. number/relations of parties
*material alteration a personal defense when used to deny liability according to org. tenor of instrument,
but real defense when relied on to deny liability according to altered terms.
1. FRAUD
1. DURESS
Personal, unless so serious as to give rise to a real defense for lack of contractual intent
If instrument not in poss. Of party who signed, delivery prima facie presumed
Instrument will not, if completed and negotiated without authority, be a valid contract in the
hands of any holder, as against any person whose signature was placed thereon before delivery
2 Kinds of Writings:
1. Where instrument is wanting in any material particular: person in possession has prima facie
authority to complete it by filing up blanks therein
2. Signature on blank paper delivered by person making the signature in order that the paper may
be converted into a NI: prima facie authority to fill up as such for any amount
In order that any such instrument, when completed, ma be enforced vs. any person who
became a party thereto prior to its completion:
but if any such instrument after completion is negotiated to HDC, it’s valid for all purposes in his
hands, he may enforce it as if it had been filled up properly.
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HOLDER
Sec. 191
RIGHTS OF HOLDER
1. holder became such before it was overdue, without notice of any previous dishonor
sec. 53 (demand inst. nego after unreasonable length of time: not HDC)
1. at time negotiated to him, he had no notice (sec. 56-def; 54-notice before full amt. paid) of —
1. infirmity in instrument
3. may enforce payment of instrument for full amount, against all parties liable
* if in the hand of any holder (note definition of holder) other than a HDC, vulnerable to same defenses
as if non-negotiable
General Rule: in the hands of any holder other than a HDC, NI is subject to same defenses as if it were
non-negotiable.
Exception: holder who derives title through HDC and who is not himself a party to any fraud or illegality
has all rights of such former holder in respect to all parties prior to the latter.
but no reversal if party being made liable became bound prior to acquisition of defective title
(i.e., where defense is not his own)
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TRANSFER
DELIVERY
NI incomplete and revocable until delivery for the purpose of giving effect thereto
as between
1. immediate parties
in such case delivery may be shown to have been conditional, or for a special purpose only, and
not for the purpose of transferring the property in the instrument.
PRESUMPTION OF DELIVERY
Where the instrument is no longer in the possession of a party whose signature appears thereon, a valid
and intentional delivery by him is presumed until the contrary is proved (*if in the hands of a HDC,
presumption conclusive)
NEGOTIATION
When an instrument is transferred from one person to another as to constitute the transferee
the holder thereof.
INDORSEMENT
KINDS OF INDORSEMENT
2. special – specifies the person to whom/to whose order the instrument is to be payable;
indorsement of such indorsee is necessary to further negotiation.
the holder may convert a blank indorsement into a special indorsement by writing over the
signature of the indorser in blank any contract consistent with the character of the indorsement
2. restrictive
Transfer his rights as such indorsee, but all subsequent indorsees acquire only title of
first indorsee under restrictive indorsement
1. non-restrictive
3. unqualified
1. as to presence/absence of express limitations put by indorser upon primary obligor’s privileges
of paying the holder
Where an indorsement is conditional, a party required to pay the instrument may disregard the
condition, and make payment to the indorsee or his transferee, whether condition has been
fulfilled or not
Any person to whom an instrument so indorsed is negotiated will hold the same/proceeds
subject to rights of person indorsing conditionally
1. unconditional
Person indorsing specially liable as indorser to only such holders as make title through his
indorsement
UNINDORSED INSTRUMENTS
Where holder of instrument payable to his order transfers it for value without indorsing,
transfer vests in transferee
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NEGOTIABILITY
REQUISITES
one who signs in a trade or assumed name liable to the same extent as if he had signed in his
own name
signature of any party may be made by a duly authorized agent, no particular form of appt.
necessary
1. with interest, or
2. by stated installments, or
3. by stated installments with a provision that upon default in payment of any installment/interest,
the whole shall become due, or
5. with costs of collection or an attorney’s fee, in case payment not made at maturity
1. 3. payable on demand,
where an instrument is issued, accepted or indorsed when overdue, it is, as regards the person
so issuing, accepting, or indorsing it, payable on demand
on or at a fixed period after the occurrence of a specified event which is certain to happen,
though the time of happening be uncertain
an instrument payable upon a contingency not negotiable, and happening of event doesn’t cure
it
* relate to sec. 11 ( presumption as to date) and sec. 17 (construction where instrument ambiguous)
where it is drawn payable to the order of a specified person or to him or his order. May be
drawn payable to order of —
when the instrument is payable to order the payee must be named or otherwise indicated
therein with reasonable certainty
2. drawer or maker, or
3. drawee, or
or bearer,
when payable to order or fictitious/non-existent person, and such fact known to the person
making it so payable, or
1. 5. where addressed to drawee: such drawee named/ indicated therein with reasonable
certainty
bill may be addressed to two or more drawees jointly, whether partners or not, but not to two
or more drawees in the alternative or in succession
2. drawee is fictitious/incapacitated
Gen. Rule: order/promise to do any act in addition to the payment of money renders instrument non-
negotiable.
Until
1. restrictively indorsed
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DEFINITIONS
NEGOTIABLE INSTRUMENT
Written contract for the payment of money, by its form intended as substitute for money and
intended to pass from hand to hand to give the holder in due course the right to hold the same
and collect the sum due
PROMISSORY NOTE
unconditional promise in writing made by one person to another signed by the maker
engaging to pay on demand, or at a fixed or determinable future time a sum certain in money to
order or to bearer
where a note is drawn to the maker’s own order, it is not complete until indorsed by him
BILL OF EXCHANGE
unconditional order in writing addressed by one person to another signed by the person giving
it
requiring the person to whom it’s addressed to pay on demand or at a fixed or determinable
future time a sum certain in money to order or to bearer
1. personal check
2. manager’s/cashier’s check – drawn by a bank on itself. Issuance has the effect of acceptance
3. memorandum check – “memo” is written across its face, signifying that drawer will pay holder
absolutely without need of presentment
4. crossed check –
effects:
3. warning to holder that check has been issued for a definite purpose so that he must inquire if he
received check pursuant to such purpose, otherwise not HDC
kinds:
BEARER
HOLDER
Payee or indorsee of a bill or note who is in possession of it, or the bearer thereof.
1. issue
2. negotiation
4. acceptance
5. dishonor by on acceptance
7. dishonor by nonpayment
8. notice of dishonor
10. discharge